Chinese manufacturing costs set to soar

Supply chain for iPhone shows increasing labour costs

The costs of manufacturing consumer electronics devices in Chinese factories are set to drastically increase, according to emerging reports from the country.

Teardown reports of Apple's recently-launched iPhone 4 reveal that the smallest part of Apple's costs in putting together the popular smartphone are in the factories of southern-Chinese city Shenzen.

Labour costs increasing

However, these costs are soon to increase due to worker shortages, a strengthening Chinese currency and the increasing costs of living for workers in China, due to inflation and rising house prices.

The New York Times reports that, "desperate factory owners are already shifting production away from this country's dominant electronics manufacturing center in Shenzhen toward lower-cost regions far west of here, even deep in China's mountainous interior."

The labour costs associated with putting together Apple's iPhone amount to around 7 per cent of the total cost of manufacturing the device. Analysts are now predicting this is soon set to drastically increase.

"Electronics companies are trying to figure out how to deal with the higher costs," according to Jenny Lai, a tech analyst at CLSA in Hong Kong. "They're already squeezed, so squeezing more costs out of the system won't be easy."

Many Chinese factory workers are paid less than a dollar an hour to put together consumer electronics devices such as the iPhone, with Chinese manufacturers such as Foxconn coming under fire recently due to reports of poor working conditions.